Will Brexit boost the South West hotel sector?

07/07/2016

A weaker pound may well benefit hotel owners in the south west, says Philip Gibson, LSH Director of Hospitality and Leisure.

Much has been written on the possible effects of Brexit on the UK economy, but the impact on the South West’s hotel sector remains unclear.

However, when we look at what we can expect from the coming months, UK residents travelling overseas will be facing higher costs due to the weaker pound, in the short term at least. As a result, many may contemplate a domestic break instead, which is likely to provide a boost for the region’s hotels.

With the South West attracting nearly one in five of all Britain’s bed nights, there is clearly a strong chance that the region will see a further rise in the already high numbers of people choosing to spend their leisure time in this part of the country.

Equally, according to the UK Tourism Statistics 2016, published by The Tourism Alliance, the UK is the eighth largest tourism destination by numbers but the sixth largest by visitor expenditure – so, any fall in the price of sterling will improve the spending power of overseas visitors, making the UK a more attractive choice.

VAT reduction

If we look longer-term, there may also be another benefit. Under EU rules, the UK was obliged to levy VAT on tourist accommodation but at the standard rate of 20%, rather than the lower rates adopted by many European countries. Free of control from Brussels, the UK government could reduce the VAT rate or even abolish it altogether, putting UK tourism on a par with many European destinations.

A week after the referendum, the Governor of the Bank England hinted that the cost of borrowing may be cut, possibly as early as July, to head off an economic downturn. Whilst talk of a downturn is unwelcome, borrowers will appreciate lower interest costs if reduced rates are passed on. Of course, the Governor doesn’t have much room to manoeuvre and any cuts are likely to be small.

Increased costs

One potential negative is labour supply. The hospitality industry relies heavily on workers from outside this country and from the rest of the EU in particular. Hotels and other hospitality businesses have come to rely on EU workers to fill largely unskilled full and part-time posts, and the cutting off of this plentiful source of labour may result in increased costs for some operators.

But, if we have learned anything from the last 10 years, it’s that the region’s hospitality businesses are highly resilient to economic ups and downs. As the South West remains the most popular tourist destination for domestic visitors, I would say that it’s reasonable to assume that the long term outlook remains favourable.